Net Zero Momentum Builds Across Real Estate, Infrastructure Funds

Real estate experiencing a “clear shift” toward decarbonisation, with growing focus on efficiency, tenant appeal, and investor value. 

Around three quarters of real estate fund mangers globally have introduced net zero policies with around half publishing net zero commitments and implementing net zero targets, suggesting a growing alignment of the sector with the goals of the Paris Agreement. 

The figures were released by GRESB, a global ESG benchmark for real estate and infrastructure investments, in its 2023 assessment results, which has increased and deepened its focus on net zero-related data.  

“Benchmark growth across real estate and infrastructure this year is not just about numbers – it’s about the depth, breadth and usefulness of the data,” said Sebastien Roussote, GRESB’s CEO. 

“[Participants’] increasing dedication and awareness of data quality demonstrates the commitment of global real assets to transparency and sustainability on a broader scale,” he added. 

GRESB noted a 15% participation increase in its Real Estate Benchmark compared to the previous year, with 2,084 listed and non-listed portfolios representing US$7.2 trillion in gross asset value (GAV) across 75 countries. 

GRESB said that this underpins the degree of importance investors and other stakeholders place on decarbonising buildings in line with the goals of the Paris Agreement. 

Seventy-two percent of global real estate fund managers now have a net zero policy in place, GRESB said, adding that 93% of Oceania-based participants have a policy, followed by 78% of Asia-based participants, and 77% of Europe-based participants.  

“The unprecedented events of 2023 mean that sustainability has never been more important,” said GRESB’s Chief Innovation Officer Chris Pyke, speaking during a webinar launching the findings.  

“We understand that, in 2023, there is absolutely no way to achieve our Paris goals without [net zero] buildings. We know that our actions and our activities have never been under more scrutiny, and there has never been more potential for real estate to deliver benefits for people and the environment.” 

However, despite the majority having a net zero policy, only 56% of assessed fund managers have made a public net zero commitment and 50% have implemented a net zero target. The built environment generates around 40% of annual global CO2 emissions. 

Jessica Long, Senior Vice President of Environmental Stewardship and Sustainability at the US-based National Association of Real Estate Investment Trusts (Nareit), argued there is nonetheless a “clear shift” happening in the real estate industry, with the decarbonisation of buildings being “at the top of most regional agendas”.  

“It’s clear that this doesn’t have to just be a cost,” she said. “There can be real value in decarbonising buildings and running them more efficiently so that they are more appealing to both tenants and investors – it’s a really exciting time.” 

Recent research exploring the relationship between private equity real estate (PERE) performance and voluntary ESG disclosures noted that GRESB reporting is associated with a 0.35% increase in an ODCE fund’s total quarterly return.  

Overall, average GRESB scores for real estate increased by a point to 75 for the Standing Investments Benchmark and to 83 (from 81) in the Development Benchmark. Participants saw a ten-percentage point average increase in their GRESB score during their second year of reporting.  

“Net zero in real assets is not merely a goal, but a necessity,” said Roussotte.

“It requires a collective commitment to reduce carbon footprints and drive sustainability in the built environment. GRESB participants stand at the forefront of this movement, actively implementing strategies, setting targets and integrating sustainable practices to accelerate progress towards a net zero future.” 

Keeping score 

The Infrastructure Fund Assessment increased to cover 172 funds in 2023, and the Infrastructure Asset Assessment spanned 687 assets across 72 countries. Average scores for assets increased by four points to 83 and for funds by one point to 83. 

GRESB’s infrastructure members have deepened their data coverage, assessments found, noting an increase in reporting on key metrics including air pollution, biodiversity and habitat. 

Sixty percent of global infrastructure assets reported a net zero policy, with 40% reporting net zero commitments and 60% setting net zero targets.  

At the fund level, 68% of reporting funds have a net zero policy in place, with 70% introducing net zero commitments and 60% setting net zero targets. 

GRESB also published the 2024 roadmap for its infrastructure and real estate standards.  

For the Real Estate Benchmark, GRESB plans to introduce scoring for net zero target-setting, expand an indicator scope to cover strategy around climate-related opportunities, and introduce scoring for energy efficiency as supplemental insight into operational performance of reported assets.  

GRESB further intends to introduce country-level benchmarking and scoring methodologies, providing additional insight into portfolio representativeness of intensity values in cases of incomplete data coverage by participants.  

For the 2024 Infrastructure Standards, GRESB aims to provide participants with the ability to report data coverage levels for Scopes 1-3 emissions, offering more points to participants that report full data coverage for Scopes 1 and 2, and giving participants the opportunity to describe the methodology used to determine material Scope 3 emissions.  

GRESB will also provide an impact assessment of climate-related opportunities, scoring scenario analysis indicators. 

“There is ongoing research around the topics of biodiversity, diversity equity and inclusion, embodied carbon, data quality and supply chain management,” GRESB said. 

In March, GRESB partnered with the Partnership for Carbon Accounting Financial (PCAF) and Carbon Risk Real Estate Monitor (CRREM) to launch harmonised technical guidance for the financial industry on accounting and reporting real estate operational emissions.  

GRESB’s data is used by 150 institutional and financial investors. 

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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